How has Microsoft Dynamics fared in the transition from server to cloud? It's early days for its competitor to Salesforce.com, and a battle is assured.

Microsoft has slowly been releasing cloud versions of its voluminous software portfolio. A little over a year ago it was the turn of the vendor's flagship customer relationship management (CRM) database, CRM Dynamics.

The cloud version, CRM Dynamics Online, had a relatively low-key release and has a long way to go in capturing mind share for the label of software-as-a-service CRM.

Salesforce.com's long head start, plus a media-savvy CEO in Marc Benioff, has entrenched itself as the first name people think of when they hear "CRM in the cloud".

The man responsible for selling CRM Dynamics Online in Australia is also new to the job. Thomas Gudman moved to take the role of director for the Dynamics business nine months ago. This is his eighth year with Microsoft; previously he worked in a systems integrator deploying solutions, applications and running change management.

While Microsoft never breaks down local numbers the overall trends for takeup of the cloud version are telling. More than 60 per cent of new customers to CRM Dynamics are choosing the online version, which now has over 33,000 customers and 2.2 million users.

CRM is a growing market, twice the speed in Australia at 5 per cent compared to a global rate of 2 per cent. The total market is estimated at US$11 billion and in Australia at $245 million. Microsoft is promising it will bring its enterprise resource planning (ERP) software online by the end of the year as well.

The pitch

Microsoft is sticking to the trusted script followed by all established hardware and software vendors battling cloud upstarts. The keyword is "choice" — the customer can choose whether to go on-premise or online or a hybrid approach. Personally I wonder at how valuable the other options are for the vast majority of Australian SMEs. How many would want to buy a server, install, maintain and upgrade it, just to run Dynamics?

Gudman defends the on-premise option by pointing out that while the cloud has many ways to access the CRM database it has fewer points for information entry.

"In the cloud you tend to have multiple users accessing the information. In an on-premise solution you tend to have more integration and more real-time data needs," he said.

A typical on-premise scenario is a customer with a CRM highly integrated into corporate networks, Outlook, SharePoint, Exchange and Lync.

Yes, you can integrate Dynamics Online with the cloud versions of all those programs but Gudman points out that the cost of repeating all that integration in the cloud can add heavily to the purchase cost.

"The minute you come up to enterprise the business models are more integrated, there are more vertical solutions," Gudman said.

Large enterprises with very strict policies on managing firewalls and data security also might favour on-premise, Gudman adds. Data sovereignty is another sticking point. Public sector and finance customers are quite happy to pay to keep their CRMs in country, in office and out of the hands of foreign governments, the theory goes.

Although, as more and more enterprises sign up to cloud platforms such as Office 365, Salesforce.com and so on, the consensus appears to be shifting. But these scenarios almost always involve enterprise-sized companies, not the 97 per cent of companies in Australia that fall under the SME definition. SMEs are almost 100 per cent in choosing the cloud option, Gudman admits.

How to take on Salesforce.com

The measure of CRM Dynamics Online's success is how well it can take on the number one player in CRM SaaS. Salesforce.com has a very sophisticated platform that has wholeheartedly embraced social media with its Chatter instant messaging service and has a world of expansion options through custom apps built on Force.com. To unseat the champion, CRM Dynamics Online has to pull something pretty special out of the hat.

Here're Gudman's key selling points. First, as a member of the Microsoft family, CRM Dynamics Online has the ubiquitous Microsoft interface that nearly everyone knows by heart.

"The minute you open Dynamics it feels like you've been here before. You minimise the training, the time to value of using the application and getting value out of it," Gudman said.

This equates to higher take-up and adoption among staff — in other words, the business starts seeing the benefits of using the CRM much faster. Second, Microsoft is the only vendor providing a guaranteed (i.e. paid) service-level agreement at 99.9 per cent uptime. (This would be a bigger selling point if Salesforce.com was struggling with uptime but there are very few reports of outages on Salesforce.com.)

Third, Microsoft has undercut Salesforce.com by quite a margin — and for once offered an easily understandable pricing model. CRM Dynamics Online costs a flat rate of US$44 per user compared to US$65 for the professional edition of Salesforce.com and US$125 for the enterprise edition. In Australia, the land of outrageous software extortion, Salesforce charges US$95 for professional and US$180 for enterprise editions.

"Other players might start very cheap but the cost of ownership over a 12-month period explodes. And then there are growing costs over a long period. For SMEs cashflow is king," Gudman said.

Microsoft adds that Salesforce.com charges extra for services such as mobile access, offline access, visual workflow, partner and community portal, and a knowledge base. Some of these Microsoft provides free, shifting the price comparison even further in its favour.

Cheaper, familiar and more reliable — these are appealing traits for SMEs but it will be interesting to see how much of an impact they will make on Salesforce.com's momentum. The latter just added a second floor to its HQ in an upmarket Sydney CBD tower and has reportedly been adding staff rapidly this year. A lot hinges on the next release.

One reason why CRM Dynamics Online can't charge for mobile access is that it barely has any. Although it's cloud-based, the software only works properly on an Internet Explorer browser. In other words, no Macs, iPads or Android tablets. The next release will include a native CRM mobile client that will run on BlackBerry, Android and iOS devices, Gudman said. And it will be cross-browser compatible.

The update will bring "enhanced social capabilities" to give CRM Dynamics Online a leg up into the "social enterprise" conversation. Also included will be better business intelligence analysis. Gudman says Microsoft plans to "give a lot of value out of the box" to further sharpen the deal.

And Salesforce.com is still vulnerable to accusations that it charges too much for storage. The exact rates are negotiable but some blog posts put the range at $800-$1500 per year for 1GB.

"Some of our competitors offer 200-400 per cent less storage than we do and charge twice as much for additional storage. Post the purchase and sign-up you need to manage that," Gudman said.

One of the biggest weaknesses in the Dynamics pitch is the lack of easy integration with third-party software. Many types of cloud software have built connectors to Salesforce.com's API which makes integrating at least the contacts database as easy as copying a security key between the two applications.

CRM Dynamics Online has the advantage of integrating tightly with other Microsoft products, and given that Office and Windows still rule the desktop this is far from a bad thing. But the new breed of cloud software ISVs are much more likely to point to one of their own such as Salesforce.com than to Dynamics.

In short, Microsoft has two battles to fight. For presence and market share among consumers, and for friends among the new ranks of developers who are bringing out the latest and greatest cloud software, a lot of it for SMEs.